FOOD MATTERS | Capitol Hill bistro learns Groupon lesson the hard way

Three years ago, I had a reasonably good dinner on Capitol Hill at a little spot called Thomas Street Bistro. I'd met up with a friend, and a couple of his friends showed up during the course of the evening, and a music student from Cornish dropped by to play a few tunes.

It wasn't great, but it wasn't expensive, and I wrote a post that was mildly encouraging.

But this quirky neighborhood spot — all of 20 seats, with French owner-chef Adam Freeman, who did everything himself (cook, wait tables, wash dishes) — fell victim to the crack-cocaine of so-called "social media" coupons (Groupon, Living Social, Tippr, Amazon Daily Deal and many more).

It's easy to see why a restaurant owner would become addicted to Groupons: The deal goes live, promising bargain-hunters a half-price dinner (or massage, vacation or Lasik eye surgery). Within a short period (a day, three days), hundreds of people sign up.

Having collected tens of thousands of dollars, Groupon sends the merchant somewhere between half and two-thirds of the take. Great news for the merchant: Depending on the deal, he's suddenly holding a four-to-five-figure check. It's as if Mr. Belvedere stopped in for dinner and left a million-dollar tip! Except not.

Groupons may bring 500 or 1,000 people into your restaurant, but now you've got to feed them — for free. It's break-even at best if your food costs are 25 percent of your menu price, assuming that you've carefully put aside your Groupon check to cover the cost of feeding the hordes of new customers. The trouble is, that money's long gone: bills, payroll, back rent, taxes, special projects.

Can’t stop the deals

The math is simple: A single Groupon "bump" of $15,000 costs the user up to $35,000 in foregone revenue. (Briefly: 1,000 multiplied by 50-percent-off Groupons at $25 each, equals $15,000 cash to the restaurant requiring $50,000 worth of food at full price, they'd have $50,000. Instead, they've "borrowed" $15,000 against future, free dinners.)

And once you get a Groupon "bump," you can't stop. Every social-media sales rep in Seattle will call you day and night, will stop in, will send e-mail, will not leave you alone. Eventually, most restaurant owners give in and try again.

Freeman — whose restaurant was so small, and overhead so low that he really, truly did not need a full house to break even — nonetheless, continued to offer on-line discount deals. To get bigger payments from the daily-deal pushers, he inflated the price of his dinners to unrealistic levels; in the meantime, more customers meant higher expenses, so he had to cut corners.

Finally, Groupon couldn't take it any more. As complaints rolled in and Freeman's Yelp rating fell to two-and-a-half stars (out of five), they pulled their current deal.

Doing it on own

Now, let me say, from the vantage point of a longtime industry observer and occasional paid consultant to Seattle restaurants, that users of Groupons and their siblings hardly ever return for a full-price meal. No, make that never.

You've trained them that your food is worth half of what your menu says it costs; you've trained them that you undervalue your own product. There's no incentive for restaurants to provide anything like the full-price experience in terms of carefully prepared food.

And, since coupon-users almost never tip on the actual menu price, there's no incentive for wait staff to provide anything but perfunctory service.

Even with the brutal reviews on Yelp, though, Freeman told the Capitol Hill Seattle blog, "I think we achieved what we wanted. We achieved enough return business from those daily deals."

Assuming he's sophisticated enough to have tracked repeat customers, he's looking to the future: "We think what is best now is to go back to being a small, neighborhood business."

And, yet, the user is on his way to becoming a pusher himself. Freeman is the founder of a new venture called Pricemobster, which he describes as a merchant-owned publisher of daily deals. In a rare admission that maybe restaurants that use coupons to drive traffic are making a big mistake, the Pricemobster site quotes Freeman: "He realized that, while the business owners received a large influx of cash all at once, many were actually losing money and not gaining either customer loyalty or appreciation."

A taste of Noo Yawk

Henry & Oscar's, 2525 Fourth Ave., is a deliberately retro spot that's been born, after an eight-month build-out, at the corner of Fourth Avenue and Vine Street in Belltown. Mark and Katie Stern, the owners of the Big Picture cinema three blocks down the street, have recreated the atmosphere of a mid-Manhattan lounge.

The bar now takes up what used to be the main room at Shallots — long, narrow, lots of windows. At Shallots, the tiny bar was an afterthought; here, it could be the main event, like the saloons back in Noo Yawk. It’s no accident: Mark Stern's grandfathers, named Henry and Oscar, were in showbiz, and the concept was to emulate Toots Shor's legendary sports and showbiz hangout on West 51st Street.

What you don't see from the bar is the rest of the restaurant: Down the hall is swanky seating with private booths, as well as large tables. One is labeled “The Chairman”; another, “The Godfather.”

The happy-hour prosecco is $5; the fried calamari, a notch more than $6. A colorful Chicago hot dog, $4. There's a decidedly old-fashioned beef stroganoff on the dinner menu for 18 simoleons, and if you've got a fat roll of bills in your pocket, you might want to go for the filet mignon or the rib-eye.

The executive chef is Mark Wadhwani, a veteran of Ruth's Chris, the steakhouse chain that's good at relieving diners of their Benjamins.

More comings and goings

Memo to local chefs and bartenders: Watch what you do or say in front of customers when the boss is around.

There were two casualties within recent weeks. First, Ba Bar's bartender Evan Martin got himself fired by owner Eric Banh. Shortly thereafter, Michael Robsertshaw, the stalwart chef at Local 360, was bounced by owner Marcus Charles after Robsertshaw reportedly started lofting dishware at a hapless cook.

Openings galore in March: In Georgetown, Fonda La Catrina, a Mexican spot in Georgetown. La Lot (Vietnamese) in downtown. Belltown's DopeBurger (ex-Noodle Ranch) will become a pizza joint called Rocco.

Ballard's another hotspot for new eateries this month. Bitterroot BBQ has opened, and Amber Den, as well. Amber Martin, formerly at Theo's chocolate, opens her own bakery, Hot Cakes. The Gerald replaces Elephants Gerald.

Capitol Hill, as usual, gets a paragraph of its own, starting with Restaurant Zoe, now finally open at the corner of 14th Avenue and Union Street; that's the spot Scott Staples always wanted. Next door is Lucky 8, which also offers delivery. Regent is a coffee shop and bakery. Skelly & the Bean (modern American) is now on north Capitol Hill. Saint John (small plates), is also on Capitol Hill.